Interim Results
Rolls-Royce PLC
23 August 2001
23 August 2001
ROLLS-ROYCE plc INTERIM RESULTS 2001
Rolls-Royce plc announced today interim results for the half-year ended 30
June 2001.
Highlights are:
* Profit and cash on course
* Sales up 15 per cent, at £3,042 million
* Underlying profit before tax on target at £190 million
* Average net debt reduced by 25 per cent to £940 million
* Order book and service revenues increased
* Record order book of £14.9 billion
* Service revenues up 20 per cent, representing 40 per cent of total
revenue
* Acquisitions - integration completed; businesses progressing well
* Improved operational performance - underlying trading margin up 15 per
cent
Sir Ralph Robins, Chairman, said:
'These results demonstrate the importance of the strategic changes made by
management over recent years. We have secured significant market success with
our growing range of products and innovative through-life services, and all of
our businesses have good prospects.
'Our order book has increased again to a record level of £14.9 billion.
'We have met our financial targets with average net debt being reduced by 25
per cent.
'The market is challenging. However, we have built a robust company with a
balanced portfolio of businesses, a very strong order book, continuing
improvements in operational performance and highly committed people.
'We continue to expect flat underlying earnings in 2001 and target increased
underlying earnings in 2002.'
Overview
Results for the first half of 2001 were in line with the guidance given by the
company last year. The company's balanced business portfolio delivered an
underlying profit before tax of £190 million, with a strong performance by
civil aerospace offsetting additional costs in the energy business. A similar
mix is expected in the second half. In line with our statement in August 2000,
we continue to expect unchanged underlying earnings per share in 2001.
Strong order intake resulted in a record order book of £14.9 billion at the
half year. A further £1.9 billion of orders had been announced but not yet
signed.
The provision of aftermarket services has always been an important feature of
the company's strategy. It maximises the opportunity in each market sector and
builds on the technology and intellectual property embedded in the product.
Aftermarket services revenues increased by 20 per cent and represented 40 per
cent of sales in the first half.
The company has continued to improve operational efficiency. Good progress has
been made with the first phases of the rationalisation programme, announced
last year, to simplify the business structure and deliver substantial
efficiency gains. Aggressive targets for the reduction of lead times have been
adopted. These are supported by the successful investments in capabilities and
capacity.
Market conditions are challenging. However, Rolls-Royce is a robust business,
with a balanced business portfolio, a strong order book, improved operational
performance and highly committed people. The company has recently completed
its annual review of each of its business sectors and continues to target
growth in underlying earnings and reduction of average net debt next year.
Enquiries
Peter Barnes-Wallis Tim Blythe
Director of Financial Communications Director of Corporate Communications
Tel: 0207 222 9020
www.rolls-royce.com
Sectoral review
Civil aerospace: Sales £1,717m; underlying profit before interest £163m
The civil aerospace business performed well as a result of a combination of
factors:
* Aftermarket sales were strong. The impact of the predicted retirement of
older engines was offset by higher aftermarket activity in respect of
other engines, particularly as a result of the phasing of RB211-535 and
524 aftermarket sales.
* Engine unit deliveries were up by 40 per cent, largely as a result of
strong demand for corporate and regional aircraft engines.
* The timing of engine development programmes resulted in lower research
and development investment and lower receipts from risk and revenue
sharing partners (RRSPs).
* Improvements in operational efficiency contributed to better operating
margins
Operational highlights included the continuing success of the Trent family.
The Trent 700 and 800 secured new orders; the Trent 500-powered A340-500/600
continued its successful flight tests; and the Trent 900 secured three out of
the first four airline customers for the A380.
The V2500 engine secured 55 per cent of the orders announced for the Airbus
single aisle range. Midwest Express Airlines ordered Rolls-Royce AE3007 and
BR715 engines for the whole of its new regional fleet of Embraer and Boeing
aircraft.
Significant success was achieved with the sale of Total Care Packages.
American Airlines and Continental Airlines committed their existing fleets of
RB211 engines to long-term contracts worth $1.4 billion. Such agreements now
cover 60 per cent of the RB211-535s in service.
Defence: Sales £639m, underlying profit before interest £70m
The defence business is well positioned, with a broad range of programmes. The
phasing of individual programmes is expected to lead to a similar performance
in 2001 to that achieved in 2000. This year, EJ200 engine deliveries, for
Eurofighter, are planned to reach around 40 engines, weighted towards the
second half of the year, and to increase to around 100 engines a year by 2003.
Operational highlights included commitment by European Defence Ministers to
launch the A400M military transport aircraft programme. Rolls-Royce, and its
Spanish joint venture partner, Industria de Turbo Propulsores, will play a
major role in developing the TP400 engine for the A400M.
The Joint Strike Fighter (JSF) programme, in which Rolls-Royce participates,
progressed to short take off and vertical landing (STOVL) flight tests.
Rolls-Royce Turbomeca signed a $1 billion agreement to supply RTM322 engines
for the 399 NH90 helicopters ordered by Germany, Holland and France.
The company is launching 'Mission Ready Management Services', the defence
sector equivalent of Total Care Packages, capitalising on its experience in
the civil sector.
Vickers Defence Systems continued to make a good financial contribution to the
defence business as the Challenger II contract approached completion. It won a
£250 million contract for the supply of next generation engineer tanks for the
British Army.
Marine: Sales £384m, underlying profit before interest £31m
The marine business made good progress in the first half as it continued to
benefit from a broader approach to the marine market, arising from its ability
to offer and integrate propulsion systems in commercial and naval markets.
In the naval sector, Rolls-Royce was selected for the design, manufacture and
supply of propulsors for the Royal Navy's Astute class of submarines. These
capabilities, which were developed in the commercial marine business,
complement the company's position as the supplier of the nuclear steam raising
plant for the submarines.
Rolls-Royce, with its partner Northrop Grumman, was awarded a contract to
supply 12 WR-21 marine gas turbine packages for the first six Type 45
frigates, for the Royal Navy.
Order intake in the commercial sector remained high. The company was selected
to supply a range of equipment, from podded propulsion systems to stabiliser
systems and deck machinery, for the new luxury cruise liner, Queen Mary 2.
Energy: Sales £272m, underlying loss before interest £48m
The performance of the energy business continued to be affected by the
consequential cost of technical issues relating to new products. However, the
oil and gas business is performing strongly and the industrial RB211 continues
to sell well in both the oil and gas and power generation sectors.
The programme to develop the industrial Trent is making progress as the
testing of new combustion systems to address emissions levels proceeds. Market
demand remains strong and the company expects to take new orders for the
industrial Trent during the second half.
The industrial RB211 continued its market success, with projects under
development around the world. Increased demand for natural gas is resulting in
new production and pipeline transportation infrastructure projects. To satisfy
the demand, production of industrial RB211 engines will be increased to around
40 units next year, double the output planned for 2001.
Service problems have been experienced with both the Allen 5000 diesel engine
and the A601 small gas turbine. These problems, which are being resolved, led
to contract provisions of £35 million, which were included in the underlying
loss before interest, in the first half.
The company expects second half trading performance for its energy businesses
to be similar to the first half, after charging higher research and
development costs for the industrial Trent, the Allen 5000 and the A601
Financial Services: Sales £30m, underlying profit before interest £30m
The financial services businesses made an increased contribution, reflecting
their underlying growth and increasing maturity.
Rolls-Royce Power Ventures, the company's power project developer, continued
to benefit from new opportunities arising from deregulation and privatisation
of electricity supplies.
Pembroke Group, the company's aircraft leasing business, became a joint
venture with GATX. The company's aircraft portfolio grew to 101 aircraft,
owned or on order or option, and a further 47 aircraft under management on
behalf of customers.
Rolls-Royce and Partners Finance, also a joint venture with GATX, is the
company's engine leasing business. It increased profits in the first half and
extended its activities to include industrial engines. At the half-year, RRPF
managed 224 engines on lease to 42 lessees in 22 countries.
Financial review
Sales were increased by 15 per cent to £3,042m (2000 £2,641m).
Underlying trading profit, before risk and revenue sharing partner receipts
and net research and development, increased by 35 per cent, to £254m (2000 £
189m). Underlying trading margin increased from 7.2 per cent to 8.3 per cent.
Underlying profit before tax was £190m (2000 £195m). Underlying earnings per
share reduced by six per cent, to 8.16p. These figures reflect the higher
contribution in 2000 from risk and revenue sharing partners, which was more
than usually weighted towards the first half.
The firm order book was £14.9bn (2000 £11.8bn). In addition, a further £1.9bn
had been announced but not yet included in the order book (2000 £1.6bn).
Services represented 24 per cent of the order book.
Gross research and development investment was £270m (2000 £288m). Net research
and development expenditure was £167m (2000 £186m).
Receipts from risk and revenue sharing partners (RRSPs), shown under other
operating income, were £122m (2000 £216m). Payments to RRSPs, charged in cost
of sales, amounted to £62m (2000 £60m).
Ongoing restructuring costs, of £14m (2000 £15m), were recorded within cost of
sales. In addition, exceptional rationalisation costs of £30m were charged as
a part of the £150m rationalisation programme, announced last year, to
simplify the business structure and are not included in underlying earnings.
The taxation charge, at £52m (2000 £20m), reflects the adoption of FRS19. On
the previous basis (SSAP15) taxation would have been £42m (2000 £30m).
Underlying earnings per share, reported under FRS 19, were 8.16p (2000 8.7p).
On the previous basis, underlying earnings per share would have been 8.86p
(2000 9.79p). The guidance on underlying earnings per share, given by the
company, has been consistently stated on the basis of SSAP15.
Capital expenditure was £47m (2000 £139m). Expenditure for the full year is
expected to be weighted towards the second half.
Average net debt in the first half was reduced by 25 per cent to £940m. Net
debt on 30 June was £748m (2000 £1,235m).
The interim dividend is 3.18 pence per share, an increase of six per cent over
2000. The dividend is payable on 7 January 2002 to shareholders on the
register on 19 October 2001. The ex-dividend date is 17 October 2001.
Enquiries
Peter Barnes-Wallis Tim Blythe
Director of Financial Communications Director of Corporate Communications
Tel: 0207 222 9020
www.rolls-royce.com
Group Profit and Loss Account
For the half year to 30 June 2001
Half Year Restated (note 5) Restated (note
to 30 June Half Year to 30 5) Year to 31
2001 June 2000 December 2000
£m £m £m
Turnover: Group and share of 3,150 2,807 5,955
joint ventures
Sales to joint ventures 383 315 893
Less share of joint ventures' (491) (481) (984)
turnover
________________________________________________________________________________
Group turnover (note 1) 3,042 2,641 5,864
Cost of sales and other operating (2,719) (2,391) (5,203)
income and costs*
Research and development (net)** (167) (186) (371)
________________________________________________________________________________
Group operating profit 156 64 290
Share of operating profit of 33 30 76
joint ventures
________________________________________________________________________________
Total operating profit 189 94 366
Operating profit before 219 214 511
exceptional item
Exceptional item (note 2) (30) (120) (145)
Loss on sale of businesses (2) (3) (78)
Profit on sale of fixed assets 6 2 1
________________________________________________________________________________
Profit on ordinary activities 193 93 289
before interest (note 1)
Net interest payable
- Group (35) (39) (85)
- joint ventures (21) (16) (38)
________________________________________________________________________________
Profit on ordinary activities 137 38 166
before taxation
Taxation (52) (20) (87)
________________________________________________________________________________
Profit on ordinary activities 85 18 79
after taxation and attributable
to ordinary shareholders
Dividends - interim 3.18p (2000 (50) (47) (126)
interim 3.00p final 5.00p)
________________________________________________________________________________
Transferred to/(from) reserves 35 (29) (47)
________________________________________________________________________________
* includes Other Operating Income 122 216 341
** Research and development (gross) (270) (288) (604)
Earnings per ordinary share (note
3)
Underlying 8.16p 8.70p 19.38p
Basic 5.38p 1.16p 5.07p
Diluted basic 5.35p 1.15p 5.04p
Group Statement of Total Recognised Gains and Losses
________________________________________________________________________________
Profit attributable to ordinary 85 18 79
shareholders
Exchange adjustments on foreign 19 32 30
currency net investments
________________________________________________________________________________
Total recognised gains for the 104 50 109
period
________________________________________________________________________________
Summary Group Balance Sheet
Half Year Restated Half Restated Year
to 30 June Year to 30 to 31 December
2001 June 2000 2000
£m £m £m
Fixed assets
Intangible 835 888 877
Tangible 1,732 1,792 1,772
Investments - joint ventures 193 175 174
share of gross assets 1,263 1,003 1,117
share of gross (1,070) (828) (943)
liabilities
.-other 29 31 33
________________________________________________________________________________
2,789 2,886 2,856
Current assets
Stocks 1,294 1,335 1,179
Debtors 2,442 1,975 2,181
Short term deposits and investments 175 248 142
Cash at bank and in hand 471 491 498
________________________________________________________________________________
4,382 4,049 4,000
Creditors
Amounts falling due within one year (265) (474) (272)
- Borrowings
- Other Creditors (2,647) (2,082) (2,559)
Amounts falling due after one year (1,129) (1,500) (1,058)
- Borrowings
- Other Creditors (216) (184) (206)
Provisions for liabilities and (791) (698) (720)
charges
________________________________________________________________________________
Net assets 2,123 1,997 2,041
________________________________________________________________________________
Capital and Reserves
Equity shareholders' funds 2,122 1,995 2,040
Equity minority interests in 1 2 1
subsidiary undertakings
________________________________________________________________________________
2,123 1,997 2,041
________________________________________________________________________________
Reconciliation of Movements in Shareholders' Funds
£m £m £m
At 1 January (restated) 2,040 1,967 1,967
Total recognised gains for the period 104 50 109
FRS 19 adjustment relating to - - 2
goodwill
Ordinary dividends (net of scrip (35) (28) (89)
dividend adjustments)
New ordinary share capital issued 13 5 10
(net of expenses)
Goodwill transferred to the profit - 1 41
and loss account in respect of
disposals of businesses
________________________________________________________________________________
At period end 2,122 1,995 2,040
________________________________________________________________________________
Summary Group Cash Flow Statement
Half Year to Restated Half Year to 31
30 June 2001 Year to 30 June December
2000 2000
£m £m £m
Net cash inflow/(outflow) from 15 (289) 479
operating activities
Dividends received from joint 4 4 13
ventures
Returns on investments and (31) (32) (76)
servicing of finance
Taxation paid (24) (15) (25)
Capital expenditure and financial (47) (139) (253)
investment
Acquisitions and disposals 48 (44) (53)
Equity dividends paid (31) (22) (74)
________________________________________________________________________________
Cash outflow before use of liquid (66) (537) 11
resources and financing
Management of liquid resources (31) 217 324
Financing (share capital and 122 346 (360)
borrowings)
________________________________________________________________________________
Increase/(decrease) in cash 25 26 (25)
________________________________________________________________________________
Reconciliation of net cash flow to
movement in net funds
Increase/(decrease) in cash 25 26 (25)
Cash outflow/(inflow) from increase 31 (217) (324)
/(decrease) in liquid resources
Cash (inflow)/outflow from 109) (341) 370
(increase)/decrease in borrowings
________________________________________________________________________________
Change in net funds resulting from (53) (532) 21
cash flows
Amortisation of zero-coupon bonds (1) (1) (3)
Exchange adjustments (4) (8) (14)
________________________________________________________________________________
Movement in net funds (58) (541) 4
Net funds at 1 January (690) (694) (694)
________________________________________________________________________________
Net debt at period end (748) (1,235) (690)
________________________________________________________________________________
Reconciliation of operating profit
to operating cash flows
Operating profit 156 64 290
Amortisation of intangible assets 29 30 60
Depreciation of tangible fixed 90 75 178
assets
(Profit) on disposals of tangible - - (3)
fixed assets
Increase in provisions for 55 90 49
liabilities and charges
(Increase) in working capital/ (315) (548) (95)
creditors due after more than
one year
________________________________________________________________________________
Net cash inflow/(outflow) from 15 (289) 479
operating activities
________________________________________________________________________________
Notes
Half Year Restated Half Restated Year
to 30 June Year to 30 June to 31
2001 2000 December 2000
£m £m £m
1. Analysis by business segment
Group turnover
Civil Aerospace 1,717 1,343 3,150
Defence 639 696 1,403
Marine 384 340 751
Energy 272 217 476
Financial services 30 22 40
Businesses to be disposed - 23 44
________________________________________________________________________________
3,042 2,641 5,864
________________________________________________________________________________
Underlying profit before
interest*
Civil Aerospace 163 166 332
Defence 70 69 154
Marine 31 27 67
Energy (48) (34) (48)
Financial services 30 24 56
Businesses to be disposed - (2) (2)
________________________________________________________________________________
246 250 559
________________________________________________________________________________
*before exceptional and non-trading items
Profit before interest
Civil Aerospace 151 159 312
Defence 69 68 151
Marine 14 11 38
Energy (70) (165) (191)
Financial services 29 24 55
Businesses to be disposed - (4) (76)
________________________________________________________________________________
193 93 289
________________________________________________________________________________
Net assets/liabilities -
excluding net debt
Civil Aerospace 1,226 1,492 1,116
Defence 298 390 261
Marine 569 614 582
Energy 373 387 449
Financial services 405 334 346
Businesses to be disposed - 15 (23)
________________________________________________________________________________
Net assets 2,871 3,232 2,731
________________________________________________________________________________
2. Exceptional items
Relating to: Half Year to 30 Restated Half Year Restated Year to
Jun 2000 To 30 Jun 2000 31 Dec 2000
£m £m £m
Industrial Trent - (120) (120)
Rationalisation - of -
acquired businesses (16)
- other (30) - (9)
(30) (120) (145)
3. Earnings per ordinary share
Basic earnings per ordinary share are calculated by dividing the
profit attributable to ordinary shareholders of £85 million (2000 half
year £18m, full year £79m) by 1,580 million (2000 half year,1,552
million, full year 1,558 million) ordinary shares, being the average
number of ordinary shares in issue during the period, excluding own
shares held under trust which have been treated as if they had been
cancelled.
Underlying earnings per ordinary share have been calculated as
follows.
Half Year to 30 June 2001
£m £m Pence
Profit before taxation 137
Profit attributable to ordinary shareholders 85 5.38
Exclude:
Net loss on sale of businesses 2 2 0.13
Profit on sale of fixed assets * (2) (2) (0.13)
Amortisation of goodwill 23 23 1.45
Exceptional rationalisation 30 30 1.90
Related tax effect (9) (0.57)
________________________________________________________________________________
Underlying profit before taxation 190
Underlying profit attributable to shareholders 129
Underlying earnings per share 8.16
* excluding lease engines and aircraft sold by financial services companies
Restated Half Year to 30 June 2000
£m £m Pence
Profit before taxation 38
Profit attributable to ordinary shareholders 18 1.16
Exclude:
Net loss on sale of businesses 3 3 0.19
Profit on sale of fixed assets * (1) (1) (0.06)
Amortisation of goodwill 23 23 1.48
Restructuring of acquired businesses 12 12 0.77
Energy - exceptional charge 120 120 7.73
Related tax effect (40) (2.57)
________________________________________________________________________________
Underlying profit before taxation 195
Underlying profit attributable to shareholders 135
Underlying earnings per share 8.70
* excluding lease engines and aircraft sold by financial services companies
Restated Year to 31 December 2000
£m £m Pence
Profit before taxation 166
Profit attributable to ordinary shareholders 79 5.07
Exclude:
Net loss on sale of businesses 78 78 5.01
Loss on sale of fixed assets * 1 1 0.06
Amortisation of goodwill 46 46 2.95
Restructuring of acquired businesses 16 16 1.03
Exceptional rationalisation 9 9 0.58
Industrial Trent - exceptional charge 120 120 7.70
Related tax effect (47) (3.02)
________________________________________________________________________________
Underlying profit before taxation 436
Underlying profit attributable to shareholders 302
Underlying earnings per share 19.38
* excluding lease engines and aircraft sold by financial services companies
Diluted earnings per ordinary share, are calculated by dividing the
profit attributable to ordinary shareholders of £85m (2000 half year £
18m, full year £79m) by 1,589 million (2000 half year 1,562 million,
full year 1,566 million) ordinary shares, being 1,580 million (2000
half year 1,552 million, full year 1,558 million) as above adjusted by
the bonus element of existing share options of 9 million (2000 half
year 10 million, full year 8 million).
4. Group employees at the period end
30 June 2001 30 June 2000 31 Dec 2000
Number Number Number
Civil Aerospace 24,300 25,000 24,500
Defence 7,200 7,600 7,300
Marine systems 6,500 6,500 6,500
Energy 5,100 5,400 5,300
Financial services 100 100 100
Businesses to be - 1,900 -
disposed
________________________________________________________________________________
43,200 46,500 43,700
________________________________________________________________________________
5. Preparation of interim financial statements
Throughout these financial statements the 2000 comparatives have been
restated to reflect the adoption of FRS 19 Deferred Taxation.
Additionally the Half Year 2000 comparatives have been restated to
reflect UITF 24 'Accounting for Start-up Costs' and the change in the
presentation of risk and revenue sharing partnership receipts - both
of which were incorporated in 2000 year-end financial statements.
The results for each half-year are unaudited. The comparative figures
for the year to 31 December 2000 have been abridged from the Group's
financial statements for that year, after restatement for the change
in accounting policy described above. Those financial statements have
been delivered to the Registrar of Companies. The auditors have
reported on those financial statements; their report was unqualified
and did not contain a statement under s237 (2) or (3) of the Companies
Act 1985.
The interim financial statements for the six months ended 30 June 2001
were approved by the Board on 22 August 2001.
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